Gold prices fall as European optimism wears off

In the Lead: “The Hangover - Part V”

Silver dropped $1.1 (3.35%) in early action in New York and drew close to breaching the $31 mark on the bid-side. The white metal’s three-month-long ‘consolidation’ appears to be breaking towards the downside, as is apparently the case with gold. Net speculative length as a percentage of open interest in silver is running well below the 2-year average of 20%. The noble metals headed lower along with the rest of the complex and with commodities overall this morning.

Platinum shed $26 to slip to the $1,487 while palladium fell $19 to the $665 level per ounce. Rhodium was quoted at $1,525 per ounce on the bid. In the background, copper lost 2.4% and black gold declined 1.25% while the euro struggled to maintain the $1.32 area. Dow futures indicated that Friday’s 187-point optimism-flavored advance might be at risk of being undone at least in part when the opening bell rang in NYC this morning and promptly sounded an 85-point loss in the index.

Much of what we are witnessing this morning is stemming from the assessments being given about the EU meeting and the problems that it attempted to tackle late last week. Such critiques are flowing freely and not just from market pundits. The IMF has chimed in and said that “what happened last week is important, it’s part of the solution, but it’s not the solution.”

Fiscal coordination, which was Chancellor Merkel’s principal goal, is seen as a good idea, but, alas, it is not sufficient in solving the actual problems plaguing Europe. Moody’s said that the summit failed to offer ‘decisive steps’ to end the interminable crisis. Once Soc Gen analyst’s pun was that “Moody’s captures the mood.” The mood of many people at work these days however is nothing to get punny about. The OECD reports some shocking figures on mental health, the workplace, and productivity. “Two studies published in September and October found that up to 40 percent of Europeans suffer from mental and neurological illnesses each year, and the annual cost of brain disorders is almost 800 billion euros.”

Confidence is lacking. Markets told policy makers as much on Monday morning. Italian and Spanish bond yields took flight once again, the euro headed towards the basement, and equity and commodity markets were subjected to a serious drubbing by anxiety-ridden investors. The ECB had to delicately intervene and buy some short-term Italian debt in the wake of the fast-souring sentiment. Making matters worse, if that is still possible at this juncture, Moody’s reasserted this morning that it still intends to ‘revisit’ the ratings of all EU member nations in Q1 of 2012.

The idea of the IMF stepping into the European scene with a boatload of life jackets in the form of various loans has some folks staying up at night with angst. Washington, in particular, is worried that loans that might be made to Italy or to Spain could go sour and that in turn, that could hurt countries that have lent money to the IMF itself. To be fair, no country has ever defaulted on loans it received from the international agency, but here is one time where the shopworn cliché “this time is different’ might just apply.

Will tomorrow be different? Join us here and find out.

Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America